Is Social Capital the Most Important Type of Capital?

In the modern economy, where we are continually pushed to specialize and become freelancers, social capital is becoming more important than ever. But, like anything else in life, if you want more of it, you have to put in a little effort.

Bootstraps don’t work on their own

We see the phrase, “pull themselves up by their bootstraps” tossed around when discussing inequality, mobility, and poverty, as if this was actually a viable strategy to climbing out of poverty’s sticky trap. When has anyone, especially those in the higher echelons of income and wealth, EVER done anything completely on their own?

“You don’t get rich by tugging on your own boots; someone else needs to at least appreciate the tug enough to give you money for it.”

First, it is impossible for an individual to create any form of wealth without first engaging another individual in exchange. You don’t get rich by tugging on your own boots; someone else needs to at least appreciate the tug enough to give you money for it. Second, this is a cop-out argument that does nothing to help the problem, rather only exacerbates it by tabooing cooperation, reciprocity, and helping others.

Seeking to exploit the benefits of who you know is often done in secret, but it’s done nonetheless. It is a necessary component to economic mobility and wealth creation. We all know it, but we are embarrassed to say that we had help from a wealthy connection or well-placed friend at a sweet gig. Making use of the social capital we all have is one of the key ingredients to getting ahead in life — and we shouldn’t hide it.

What is social capital?

Social capital simply boils down to who you know. Your family, friends, classmates, teachers, drinking buddies, shoot, even your fellow Uber-poolers! Information, ideas, leads, business opportunities, power and influence, emotional support, trust, and even goodwill, are all types of social capital. The fact that these resources are not “owned” by any one individual is the whole “social” aspect of this kind of capital.

What’s more is that we also have social capital in people that we don’t know, but are connected through the network of folks we do know. You can probably bet that one of your friends “knows a guy.”

Importantly, social capital makes the “other types of capital” productive. We may be loaded with education, tons of money, and a rich culture, but nothing happens unless we make use of our social capital, aka other people.

Social capital in action

In a Glassdoor survey, “Employee referrals have long been a preferred hiring method among employers, allowing companies to tap the personal networks of current employees as a talent pool for recruiting.” The survey found that “employee referrals boost the odds of a successful job match by a statistically significant 2.6-6.6 percent.”

Interestingly, employee referral had the most positive influence on getting hired, while college and university referrals negatively affect the probability of getting hired by 13.5 to 17.9 percent. Just getting that slip of card stock with fancy font, (or diploma, whatever you want to call it), certifying what you know is not as effective as who you know.

Making use of our social capital and managing our relationships has a slew of other benefits as well. Studies show that people with an array of meaningful relationships are often healthier physically, mentally, and emotionally. They live longer lives and are happier than folks that isolate themselves from society or do not seek to nurture or grow their social networks.

Despite the collaborative connotation that the term “sharing economy” implies, many of these innovations may actually be incentivizing people to be more individualistic. You can “be your own contractor,” “work for yourself,” and “create your own work hours.”

While slapping on some headphones and spending the day at a coffee shop behind a computer sounds like a pretty cool gig, we can’t stop managing our social networks. The “currency” of our social capital is our connections (basically anyone with whom we come in contact). Similar to the dollars in our bank accounts, the better we manage our currency, the easier it is to create more.

How to capitalize the social capital

Back in the day, the cocktail party was a popular way people used their leisure time to expand and/or capitalize on their social capital. Today, our use of leisure time has become more and more individualized: Netflix binges and social media scroll-athons are becoming the norm.

But, we can combat this by hitting up our local watering holes, once or twice a week, preferably one that can classify us as a “regular.” Yes, you can do this without being an alcoholic. Holding conversations and creating friends with different interests, tastes (“ugh, Kevin and his Bud Light”), and careers will prove to be very fruitful toward your social capital.

By joining organizations, clubs, and other types of groups that align to your passions, you can greatly expand your social network. There is no doubt that there is a group out there that is passionate about the same thing(s) you are passionate about. When you do find it, join it. Be advised that people see right through you if you’re joining just to meet people. Make sure you actually are interested in what the group is interested in and the social capital will blossom.

Additionally, create strong relationships with colleagues, both laterally and vertically. If some relationships aren’t meant to be strong, still manage them in a way that can grow under different circumstances. You never know when you’ll have to call on someone for help.

Most importantly, and probably the hardest to do (for some), is to help others out as much as you can (without expecting anything in return). Pick up the tab, help your friends move, give someone a ride, connect friends with other friends. Do more than what was asked of you, because conversely, you are part of everyone else’s social capital as well. We may be going back on what we said about doing it without expecting anything in return, but the more you do this, the more it is reciprocated.

The takeaway

While having a full bank account and an array of skills is super helpful in moving up and down the economic ladder, it does not happen alone. We need our fellow humans’ help! Making use of our social capital may be the most important factor in economic mobility. However, this will involve getting out from behind the computer screen and actually talking to people. Joining organizations or clubs, attending conferences and gatherings, and even hitting up the local bar will help make use of our social capital.

We are all born into different situations, with different resources, this includes levels of social capital. But, we all have a little. Notably, we are also part of the social capital of others. Carefully nurturing and managing our social networks by being the awesome social capital to others is hands-down one of the best investments there is.

All in all, be the social capital you want others to be for you and life becomes much easier.

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Published by Kevin D. Gomez

Kevin D. Gomez is an Instructor of Economics at Creighton University and Program Manager at the Institute for Economic Inquiry. He received his B.S. in Economics and Statistics from Florida State University and his M.A. from George Mason University. Trying to pay it forward by helping noneconomists make sense of the crazy world.
View all posts by Kevin D. Gomez

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